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Cablegate: Mozambique: Agoa Eligibility Review

VZCZCXRO8872
RR RUEHLMC
DE RUEHTO #1324/01 2861426
ZNR UUUUU ZZH
R 131426Z OCT 06
FM AMEMBASSY MAPUTO
TO RUEHC/SECSTATE WASHDC 6221
RUEHLMC/MILLENNIUM CHALLENGE CORP 0098

UNCLAS SECTION 01 OF 05 MAPUTO 001324

SIPDIS

SIPDIS

AF/S FOR HTREGER AND CKARBER
AF/EPS FOR JPOTASH
USTR FOR CONNIE HAMILTON
MCC FOR SGAULL
USAID FOR AA/AFR AND AFR/SA

E.O. 12958: N/A
TAGS: ECON EAID EINV ETRD MZ
SUBJECT: MOZAMBIQUE: AGOA ELIGIBILITY REVIEW

Ref: State 163056

1. Country Background Summary: Between October 2005 and
October 2006 the Government of the Republic of Mozambique
(GRM) continued to make progress in establishing a market-
based economy, eliminating barriers to US trade and
investment, reducing poverty, promoting democracy, and
protecting workers' rights. This positive trend should
continue, especially as Mozambique begins to benefit
economically from higher levels of international trade and
investment, and deepen its trade ties with the United States
under the Bilateral Investment Treaty (BIT) and Trade and
Investment Framework Agreement (TIFA).

-------------------------------------
Comments on Eligibility Requirements
-------------------------------------

2. Market-based Economy


A. Major Strengths Identified
-----------------------------
-- Mozambique continues to have one of the most dynamic and
fastest-growing economies in sub-Saharan Africa, although
the growth is from a very low base.

-- Mozambique's decade-long commitment to sound
macroeconomic policies and structural reform, supported by
substantial donor assistance, has led to a significant
improvement in economic performance.

-- GDP growth between 1995 and 2005 averaged 8.4 percent,
with the growth rate in 2005 estimated at 7.7 percent by the
World Bank. The average GDP growth rate for 2005 through
2009 is currently projected to be 7.3 percent.

-- Inflation fell from 9.1 percent in 2004 to 6.3 percent in
2005, according to the World Bank. (Other measures show
higher rates.)

-- These continuing achievements were facilitated by a
stable political situation, as illustrated by the smooth
transition in February 2005 to a new administration
following the 2004 presidential and parliamentary elections.

-- Mozambique encourages foreign direct investment, and CPI,
the government's Investment Promotion Center, actively
assists potential new foreign direct investors in
Mozambique.

-- Foreign investors participated without significant
impediments in Mozambique's privatization program.

-- Private investors continue to manage and rehabilitate the
main ports of Maputo, Beira, Nacala and Quelimane through
concession agreements.

-- The Nacala Corridor Development project, in which a U.S.
firm has a significant holding, continued operating and
rehabilitating the railroad and port system on a key
transport route between Malawi and Mozambique. This project
is supported by an OPIC loan worth USD 30 million.

-- The Brazilian Companhia Vale do Rio Doce (CVRD) began to
explore its concession area, a massive coal deposit in the
Moatize region of central Mozambique, and is anticipated to
begin exporting coal in 2007. The project is also expected
to result in the construction of a coal-fired power plant,
with the bulk of the electricity exported to South Africa.

-- Mozambique retained its international credit rating of
B/B+ by Fitch Ratings, reflecting Mozambique's positive
track record on economic reforms, political stability,
strong economic growth, openness to FDI, and expanding
exports. The most recent rating was published in July 2006.

-- Although still small, U.S.-Mozambican trade is expanding,
with the vast majority of Mozambique's exports to the US
entering under either AGOA or GSP. Mozambique's 2005
exports under AGOA and GSP provisions were valued at USD 8.3
million, representing more than 80 percent of the country's
total exports to the United States.

-- Numbers from the first half of 2006 suggest that
Mozambique's 2006 exports under AGOA and GSP provisions will
show significant growth from 2005.

MAPUTO 00001324 002 OF 005

-- South Africa is Mozambique's single largest trading
partner. The EU is a significant market for Mozambican
exports.

-- In 2005 the top five foreign direct investors in
Mozambique were South Africa, the United Kingdom, Zimbabwe,
Portugal and Sweden.

-- Mozambique is an active member of the Southern African
Development Community (SADC).

-- In October 2006, the Mozambican government and USTR held
the first Trade and Investment Council meeting under the
Trade and Investment Framework Agreement signed in June
2005. The continuing bilateral dialogue bodes well for
increased AGOA-related trade and investment in the future.

-- The GRM recognizes the importance of removing a number of
obstacles to private sector development. To this end, steps
are being taken to reduce the cost of doing business in
Mozambique, address rigidities in the labor market, and
improve basic infrastructure.

-- The "one-stop shops" for business registration were
expanded to eleven locations, covering all provincial
capitals. Current government plans call for additional
expansion to district-level capitals.

-- In December 2005 the National Assembly approved major
revisions to the Commercial Code - the result of a
collaborative effort starting in 1998 between the Mozambican
government, the private sector and donors.

-- A revision to the current Labor Law was presented to the
General Assembly in September 2006. This revision
represents an attempt by the government to address the rigid
labor legislation.

-- A joint private/public sector task force on IPR had some
successes in 2005-2006 stemming the flow of illegal products
into the local market.

3. Market-based Economy

B. Major Issues/Problems Identified
-----------------------------------

-- Approximately a dozen large state-owned or operated
companies remain, in the following sectors:
telecommunications, electricity, insurance, oil and gas
exploration, port and rail, airlines and airports, water
supply, and fuel distribution.

-- Continued work is needed to streamline company
registration processes and to share information about
regulations and procedures between the private sector and
government agencies, particularly in the area of trade
facilitation.

-- The GRM has worked with the private sector to improve
intellectual property rights protection via a joint task
force, but continues to have little ability to investigate
crimes or enforce IPR laws.

-- Access to capital continues to be a challenge in the
business environment. Private ownership of land is not
allowed in Mozambique. The government instead grants land-
use concessions for periods of up to 50 years, with options
to renew. The land-use concessions are not allowed to be
used as collateral, making it difficult to obtain financing
via the banking community.

-- Several companies continue to struggle with VAT
reimbursement delays, with the Mozambican government
hampered by income stream and red-tape issues. Additional
work is needed to improve reimbursement turn-around time and
streamline the overall process.

4. Political Reforms/Rule of Law/Anti-Corruption

A. Major Strengths Identified
-----------------------------

-- Mozambique has made significant progress in the
consolidation of democracy since the signing of the 1992
Rome Peace Accord that ended sixteen years of civil war.

MAPUTO 00001324 003 OF 005

-- Mozambique has a democratically elected government.

-- In December 2004 Armando Guebuza, secretary-general of
the ruling Frelimo party, was elected president with 64
percent of the vote, compared to 32 percent for his nearest
competitor.

-- The election was generally considered free and fair, but
was marred by some irregularities, which did not affect the
outcome of the presidential election or control of the
national assembly.

-- The political opposition retains 36 percent of seats in
the national assembly and holds five mayorships, including
that of Beira, the nation's second-largest city.

-- In 2004 the National Assembly passed a new Anti-
Corruption Law, aimed at curbing corruption in government
offices, the police force, hospitals and the schools.

-- In August 2005 the Attorney General formally announced
the creation of the Central Office for the Combat of
Corruption (GCCC), which replaced the Anti-Corruption Unit
(UAC) as Mozambique's primary corruption fighting office.

-- In October 2006 the Attorney General announced that the
GCCC had forwarded 17 new cases to the courts.

5. Political Reforms/Rule of Law/Anti-Corruption

B. Major Issues/Problems Identified
-----------------------------------

-- Though President Guebuza has repeatedly emphasized his
desire to wage a serious campaign against corrupt government
practices, corruption remains a problem and continues to
undermine Mozambique's democratic consolidation and economic
growth.

-- Mozambique's judiciary continues to be under-trained,
understaffed and susceptible to pressure from high-ranking
government officials and bribery by private parties.
However in recent years the number of trained attorneys and
judges in Mozambique has risen significantly, giving hope
for a more professional judiciary in the future.

-- Freedom House's Freedom in the World index ranks
Mozambique "Partly Free" (3,4).

-- Mozambique ranked 99 out of 158 countries on Transparency
International's 2005 Corruption Perceptions Index.

6. Poverty Reduction

A. Major Strengths Identified
-----------------------------

-- The GRM has placed poverty alleviation at the head of its
policy agenda.

-- Mozambique has made tangible progress in this area,
reducing poverty rates from 69 percent in 1996 to 54 percent
in 2004.

-- Mozambique's second Plan for the Reduction of Absolute
Poverty (PARPA II), covering the period of 2006-2010, was
launched in June 2006. The PARPA II aims to reduce, by
2009, the percentage of the population living below the
poverty line from 54 percent to 45 percent. The new plan
maintains many of the same priorities of PARPA I, including
emphasis on more training in the education and health
sectors, strengthening good governance, developing basic
infrastructure and improving macro-economic and financial
management.

-- In 2005-2006, the donor community funded approximately 50
percent of the national budget. The HIPC and Enhanced HIPC
(Heavily Indebted Poor Countries) debt relief programs have
permitted increased budgetary support to alleviate poverty,
including long-term investment in health, agriculture, basic
infrastructure, and education.

7. Poverty Reduction

B. Major Issues/Problems Identified
-----------------------------------

MAPUTO 00001324 004 OF 005

-- Illiteracy and infant mortality rates in Mozambique
remain among the highest in Africa. In 2005 the illiteracy
rate was estimated at around 55%, while, in 2004, the
mortality rate for children under five was 151.6 per 1,000
children.

-- Life expectancy dropped to just over 40 years (41.8 in
2004), and is expected to continue to decline into the 30s
by 2010 as the result of HIV/AIDS.

-- The country also lacks infrastructure, electric power,
and clean water for most of its citizens.

-- HIV/AIDS is a growing problem, with infection rates
increasing to a national average of over 16 percent of the
sexually active population.

-- Education is compulsory through the age of 12, but
enforcement of compulsory education laws is inconsistent,
due to the lack of resources and the need for additional
schools.

8. Workers' Rights/Child Labor/Human Rights

A. Major Strengths Identified
-----------------------------

-- The Constitution provides that all workers are free to
join or refrain from joining a trade union, and workers
enjoy these rights in practice.

-- The Organization of Mozambican Workers (OTM-Central
Sindical), an umbrella organization for 13 trade unions
representing workers at 1,470 companies, reports just over
103,000 union members among its affiliates.

-- The smaller Confederation of Free, Independent Trade
Unions (CONSILMO), representing four trade unions, has
approximately 57,000 unionized members.

-- In 2006 the GRM increased the country's statutory minimum
wage by 13 percent, somewhat above the 2005 inflation rate.

-- Mozambique has ratified ILO Convention 105 on forced
labor and ILO Convention 182 on the worst forms of child
labor.

-- In 2003 a revised family law was adopted that increases
the status of women.

-- Professional training for new police officers increased.

9. Workers' Rights/Child Labor/Human Rights

B. Major Issues/Problems Identified
-----------------------------------

-- In part because a very small percentage of the workforce
is employed in the formal economy, less than two percent of
the workforce was covered by collective bargaining
contracts.

-- Mozambique's current labor law is very rigid; however a
proposed draft was submitted to the General Assembly in the
fall of 2006. This revision is an attempt to address the
current rigid labor legislation, although what form the
final version will take is still not known.

-- Mozambique stands out in the southern Africa region as
having one of the most pro-worker, anti-employer labor laws
- a significant impediment to foreign investment.

-- Although labor unions are exerting significant pressure
on the government to keep many of the law's provisions, the
private sector is pushing for more flexible legislation to
promote increased investment.

-- Labor unions, created during the socialist years,
continue to lack resources, remain relatively weak and are
disengaging themselves from the ruling party, FRELIMO.

-- The Government's human rights record, while improving,
remains poor; although there were some significant
improvements in a few areas, serious problems remained.

-- Prison conditions remained life-threatening.

MAPUTO 00001324 005 OF 005

-- Security force members beat and abused detainees.

-- Mozambique is ranked a Tier II country by the
Department's annual Trafficking in Persons report.
Mozambique is a source country for women and girls
trafficked for the purpose of sexual exploitation. The
Government of Mozambique does not fully comply with the
minimum standards for the elimination of trafficking;
however, it is making significant efforts to do so.
Mozambique currently has no law explicitly prohibiting the
trafficking of humans.

-- Exploitation of children under the age of 15 and child
prostitution remains a concern.

-- Child labor remains a problem in Mozambique. A 2003
study estimated that one-third of children between ages 10
and 14 were economically active. This is largely the result
of children working in the informal or agricultural sectors,
including family farms, rather than children being used as
laborers in the formal industrial sector, something that
rarely happens.

-- Children orphaned by HIV/AIDS are often forced to work
because they are left without any adult family members to
support them.

10. U.S. National Security Concerns/Gross Human Rights
Violations

-- No Major Strengths or Major Issues/Problems Identified.

Raspolic

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